Being in debt isn't necessarily a terrible thing. Most people are, between mortgages and car loans and credit cards and student loans. Being debt-free should always be a goal, but you should focus on the management of it, not the presence of it. It'll likely be there for most of your life, and if you handle it wisely, it won't feel so much like an albatross around your neck.

There are alternatives to shelling out your hard-earned money for exorbitant interest rates, and to always feeling like you're running behind and on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay off even more, faster.

Know Where You Are
Assess the depth of your debt. Write it down, using pencil and paper or computer software like an Excel spreadsheet or Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, any outstanding tax liens, students loans, and payments on electronics or other household items through a store.

Record the day the debt began and will end (where possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged; you're going to break this down into manageable chunks, and find extra money to help pay it down.

Identify High-Cost Debt
Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.

• Don't use them. Don't cut them up, but put them in a drawer and only access them in an absolutely dire emergency.

• Identify the card with the highest interest and pile on as much extra money as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.

• Don't close them, and don't open any new ones. If you do, this probably won't help your credit rating.

• Pay on time, absolutely every time. One late payment these days can lower your FICO score.

• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club that you've never used? Looks for line items you don't need.

• Call your credit card companies and ask them nicely if they would lower your interest rates. It works sometimes.

Save, save, save
Do whatever you're able to do to retire debt. If you take a second job, earmark that money strictly for higher payments on your financial obligations. Substitute free family activities for high-cost ones; your local library may have cheap or free tickets to events. Sell high-value items that you can live without.
Bag Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option, or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny accounts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.

Don't ever, ever miss a payment
You're not only retiring debt, but you're also building a stellar credit rating. If you ever decide to move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that.

Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.

Do Not Increase Debt Load
If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.

Shop Wisely, and Put the Savings on Your Debt
If your family in large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride: Use coupons religiously. Calculate the money you're saving and slap in on your debt.

Each of these steps, taken alone, probably doesn't seem like much, But learn to live this way, adopting as many of them as you can, and you'll be able to watch your debt decrease every month.

There are myriad important numbers in your financial world, but few as critical as your credit score. This FICO number, ranging from 0-850, can affect your ability to buy a house or car, get a credit card or other loan, or even get a job sometimes.

FICO scores are based on your credit reports. Credit agencies track credit history and sell it to parties who are interested in your credit-worthiness. Credit reports consist of four elements:

• Personal information (compiled from credit applications)
• Credit history (details of your credit relationships)
• Credit report inquiries (entered anytime someone views your record)
• Public records (judgments from government sources, like liens)

Three agencies track credit scores: Equifax, Experian, and TransUnion. You're entitled to a free report once every 12 months; the best place to get this is AnnualCreditReport (www.annualcreditreport.com). You can:

• See who's been making inquiries about your credit

• Check it for errors

• Find out if you're an identity theft victim

• Gauge your chances of getting a loan

A bad credit report doesn't have to follow you forever. Even bankruptcies generally drop off after seven years. If your score is less than optimal, you can improve it. Stick with your program and you'll increase your chances of--eventually--getting into that top 5%, or even 1%.

• Report mistakes immediately to the appropriate credit agency. Do this in writing, and document it well.

• Pay everything on time. Even one late payment on a credit card can lower your credit score.

• Budget your credit card payments. They should be as much a part of your budget as your mortgage and food.

• Don't let balances on your revolving credit accounts--like credit cards--get too high. Having a high credit debt-credit limit ratio can lower your credit score.

• Neither close your unused accounts nor open new accounts to affect your credit score. That trick doesn't always work.

• Pay off the cards with the highest interest rate first. No matter what the balance, you should always pay any extra you have on the card that's costing the most. Pay minimums on the rest. When you have that top card paid off, continue the process with the second in line. and so on. Whenever you can, pay more.

• Keep an emergency reserve so you can always pay at least minimums on time. Don't be intimidated by this. If you can't save thousands of dollars, at least squirrel away a few hundred earmarked for this occasion. Skip a couple lattes and CDs every paycheck and bank it.

• Ask your credit card issuer for a lower rate. This actually works sometimes, so it's worth a try. Credit card interest is simply lost money.

• Use your credit cards occasionally and carefully. Show that you can borrow money and pay it back responsibly.

• Don't be a deadbeat. The credit bureau can't gauge your ability to pay a debt back if you don't ever borrow any.

• Try to maintain a stable job and residence. Lenders are more interested in people who show stability in their personal lives.

• Avoid--like the plague--collection agencies and judgments against you. When you've satisfied a lien, be sure to check that the lien has been released and report that to the three reporting agencies if necessary.

What happens if your credit is really in shreds? Double your determination and keep following your program. If you can't get a traditional credit card, get a secured credit card, where you make a cash deposit and can charge up to that limit. Pay it off faithfully, and you'll probably eventually get credit again.

In the meantime, save as much as you can so you don't trash your credit again. Consider asking someone to co-sign a small loan so you can prove you're worthy of credit.

When you are, shop for your credit cards like you shop for groceries and clothing, to find the best deal. Bankrate.com (www.bankrate.com) is a good place to do that. That's a good site for finding the best deals on other financial products, too, like mortgages and other loans.

Improving your credit score will likely take time and some sacrifice on your part. But it's worth it, and it'll save you money eventually -- the higher the FICO score, the better your chance of credit and loans, and the lower your interest rate may be. So keep plugging towards the payoff.

It can happen any number of ways. You can lose your job. Have an expensive medical emergency. Find yourself with three children in college. Be an adult during the current financial crisis. Whatever causes it, you may find yourself in crisis mode money-wise, and need some quick solutions.

There are a number of ways to get through it, to see light at the other end. But it'll take assertiveness and perseverance, and you will have to make some sacrifices. Here are some suggestions.

• Be proactive, not reactive. Start working on the problem when you see it on the horizon, not when you can't bear to answer the phone or open the mail for fear of a bill collector.

• Assess your situation. And take enough time to do it thoroughly. Record your regular expenses and liabilities. You can do it on paper, in an Excel spreadsheet, or in a personal finance program or Web site. Pick one system and stick with it, so all of your planning will be coordinated.

• Build a budget. Based on that information, create a budget you can live with using paper and pencil or computer software.

• Write down everything you spend. Everything. Then compare this regularly to your budget.

• Calculate the money that will come in every month and everything that's due every month, quarter, and year.

• Identify payments that must be paid in full. This probably includes things like your mortgage or rent, utility bills, and insurance payments.

• Contact creditors and negotiate short-term payment reductions. Of course, you can't do this with everyone, or maybe even the majority of your creditors. But you can, for example,  try to refinance or consolidate student loans, get the interest on your credit cards lowered, and set up budget plans with your energy company.

• Scale back on expenditures where possible. Do you really watch all 800 channels on your cable system? Cut back to basic cable. Go to the library for books and DVDs. Take advantage of resources like Mary Hunt's Debt-Proof Living columns (www.cheapskatemonthly.com). Use coupons, visit garage sales and Goodwill for clothes and household goods, and avoid high-end groceries and restaurants. You don't have to go into austerity mode, but cutting back $10 here and there will add up.

• Do not increase your debt. You don't have to cut your credit cards up, but put them in a drawer and don't use them unless you have a dire emergency. Concentrate on paying them off.

• Consider a credit card balance transfer. But only do so if you're sure you can pay off the balance in the stated time period.

• Save $1 a day on something and bank it. Apply it to a credit card, put it in savings, or use it to buy something you need and have been avoiding buying.

• Consider adjusting your retirement deductions. This should be way down on your list. 401(k)s and such are too important to skimp on unless you absolutely must.

• Ask your doctor about switching any medications to generics.

• Do not rob Peter to pay Paul. For example, no using credit cards to buy groceries or pay bills.

• Save on energy. Raise or lower thermostats more than you usually do. Combine car trips where you can. Use the vehicle with the best mileage whenever possible. Have your furnace tuned every year. Use cold water in the washing machine.

• Make gifts instead of buying them. It'll save money and mean more to the recipient.

• Adjust your tax withholding. If you're getting a refund, you're giving the government a loan. Adjust your withholding at work of decrease your estimated payments, and you can use that money now.

• Evaluate your phone service. Do you know what extras you have, and do you need them? Can you get by with just your cell phones and drop your land line? If your contract is nearly up and you don't use the phone much, consider a prepaid cell phone.

Any one of these ideas taken alone wouldn't seem like it would save enough money to make it worthwhile. But do enough of them, and you'll probably be surprised how much you can save. Use that savings to retire debt, and you'll eventually have enough money to spend on things you've been avoiding. But try to stay out of debt and in the money.

Your recordkeeping of noncash donations depends on the dollar amount of your gift. That value also determines the manner in which donations get reported on your tax return.

• Gifts valued at less than $250: You will need a receipt from the charity showing the date of your contribution, the organization's address, and a reasonably detailed description of the property. The receipt doesn't have to state the value of the property you gave away. Keep in mind that you aren't required to have a receipt when it's impractical to get one, for example, if you deposit your donation at an unattended bin site. But whether or not a receipt is required, you still need to keep a written record of each item you give away. 
  
  
• Gifts of $250 but not over $500: For goods valued in this category, you must obtain a timely written acknowledgment of your gift from the charity. Without the written acknowledgment, you get no charitable deduction. The acknowledgment needs to contain the following information: (a) a description of the property you gave away, and (b) whether you received any goods or services from the charity in return for your gift (if so, the value of the goods or services needs to be stated). 
  
  
• Gifts over $500 but not over $5,000: For donations of this amount, you must have a receipt from the charitable organization in the same format described under "Gifts of $250 but not over $500"; otherwise, you'll get no deduction. However, the information required to be included in the written record must also include details about your acquisition of the property donated. In addition, deductions for these larger gifts require attaching a special IRS form to your tax return for the year of your contribution. 
  
  
• Gifts over $5,000: You are required to obtain a qualified appraisal and attach an "appraisal summary" to your tax return. The value of all items donated during the year that are similar in nature are added together to determine whether this rule applies. Since many complicated rules can apply to contributions in this category, it's best to contact this office before you make your contribution. Recordkeeping for gifts valued over $5,000 are the same as those listed previously for "Gifts over $500 but not more than $5,000." In addition, you are required to get an authorized signature from an official of the charitable organization. Page 2 of IRS Form 8283 accommodates the required information and provides the required signature areas to meet the above requirements. Use Section B; Part I to describe the gift, Part III for the appraiser and Part IV for the Donee acknowledgement. Download IRS Form 8283 pdf file (32 kb)

Noncash Contribution Record: Useful Noncash Charitable Recordkeeping Forms can be downloaded for your personal use. Use the form to record property given, condition, cost, your estimate of fair market value, etc. Download Noncash pdf file (44.8kb)

CAUTION: This is a brief summary of the regulations for valuing and keeping records for property donations. For additional specific details, please consult with our office.

The FICO® score, developed by Fair, Isaac (the pioneer in credit scoring), is a number between 300 and 850 that lenders use to determine your credit rating. A FICO® score is a snapshot of your credit rating at a particular point in time. The higher your credit score, the more likely you are to be approved for loans and receive favorable rates.

More than 70% of the 100 largest financial institutions use FICO® scores to make billions of credit decisions each year, including more than 75 percent of mortgage loan originations. 

What does the score mean? Generally, the scores equate to the following (keep in mind each lender will have their own criteria that may differ somewhat from the values shown):

• 500-619 is considered a sub-prime score
• 620-699 is considered a medium score
• 700 and above is considered a good to excellent score

How are they determined? The five areas considered in the calculation of your credit score listed from most important to least important are:

• Payment history 
• Amount owed 
• Length of credit history 
• New credit 
• Types of credit in use 

How can your score be improved? Generally, people with high scores consistently:

• Pay bills on time 
• Keep balances low on credit cards and other revolving credit products 
• Apply for and open new credit accounts only as needed 

Want to check your score?

Whether you are certain that your credit rating is strong, or have had credit problems in the past and want to double check that your credit rating has improved, it's a good idea to review your credit report every few years and check it for accuracy. Below are the names of the three major sources of credit information. It's important to check your credit before making a major purchase like a car or a home, so that when you need to sail through the loan process with your good credit, you'll avoid any surprises. Generally, if you order a credit report via the Web, you'll pay a minimal fee and get the results within a day or two. 

Many of the credit rating companies offer special programs for periodic credit reports, fraud and ID theft protection. For additional information about the specific program available from the credit rating companies, refer to their individual websites (see list below). The three major companies used by most lenders or creditors checking on your credit are: 

• Equifax 

• Experian
  
  
• Trans Union Corp.

Minimize the INFORMATION a thief can steal - The following are some guidelines to help avoid becoming a victim of identity fraud. If you have already become a victim, see our Tips for Victims.

• Don't carry a Social Security Card, extra credit cards or a passport unless the documents are needed.
  
  
• Memorize your Social Security Number, any personal identification numbers and passwords. If you write them down, do not record them on anything in your wallet or purse. When creating a password or PIN, do not use digits from your Social Security number, telephone number or date of birth.
  
  
• Sign new credit cards upon receipt. Save all credit card receipts and match them against your monthly bills. Never throw them away intact in a public trash container.
  
  
• Never loan out your credit card. Report lost or stolen credit cards immediately.
  
  
• Never give out personal identity information, especially Social Security or credit card numbers over the phone, unless you know the person or business and initiated the phone call.
  
  
• Beware of phone or mail solicitations disguised as promotions offering prizes or bargains designed solely to obtain your Social Security or credit card numbers.
  
  
• Don't leave mail out for pickup and have a locked mailbox. Promptly remove mail from your mailbox after delivery.
  
  
• Shred all mail, bills, receipts and financial documents with your name or identification numbers on them, especially pre-approved offers of credit. Thieves have been known to fish identities out of trash bins.
  
  
• Look over monthly credit card and bank statements carefully. Follow up if any charges or withdrawals appear suspicious.
  
  
• Order credit reports from the three major credit bureaus at least once a year and more often if you have been a victim. Check every line of information in your file for fraudulent activity and other discrepancies.
  
  
• Pay bills electronically when possible. Follow up with creditors if you do not receive a bill on time because it could mean an identity thief has taken over your account and has changed the billing address.
  
  
• Remove your name from the marketing lists of the three major credit reporting bureaus to limit the pre-approved offers of credit you receive.
  
  
• Keep the number of credit cards you use to a bare minimum. Cancel all unused credit card accounts.

The following are recommended actions for victims of identity theft:

• Contact the fraud departments of the three major credit bureaus. Ask to have your credit file flagged with a fraud alert that includes a statement asking creditors to call you before opening new accounts in your name.
  
  


• Contact all creditors by phone and in writing to inform them of the problem.
  
  


• Call your local police and the nearest U.S. Postal Inspection Service to report the crime.
  
  


• Keep a log of all your contacts with creditors and authorities and make copies of all documents.
  
  


• Contact the state office of the Department of Motor Vehicles to learn whether another driver's license was issued in your name.

The only interest that is still deductible as an itemized deduction is home mortgage interest and investment interest. If you are like so many others with large consumer debt such as credit cards, car payments etc. you are paying interest that is not deductible. If the amount of consumer interest you pay each year is substantial and you itemize your deductions, you may want to consider converting that non-deductible interest into deductible interest by paying off the consumer debt with a home equity line of credit. Generally, current law allows individual taxpayers to borrow up to $100,000 of home equity and deduct the interest on that loan as home mortgage interest. This would also apply to planned large consumer purchases such as a car or motor home. Using a home equity line to purchase these items will make the interest deductible. 

Before borrowing against the home, you should consider the following:

• Treat the home equity loan like a consumer loan and pay it off over the same period of time you would have had to pay the consumer loan. Otherwise, you may reach retirement age without having the home paid for.
  
  
• When buying a car, you can sometimes get very favorable interest rates or a rebate. It is good practice to make sure the benefit of making the interest deductible is greater than the benefit of the low interest consumer loan.
  
  
• If there is any chance of defaulting on the loan, the repercussions from defaulting on a home loan are far more serious than on consumer debt.

Generally, it is sound financial advice for you to get out of debt. But that may be easier said than done, especially if the debt is sizeable compared to your ability to repay. When locked into a long cycle of debt repayment, the drudgery can become a significant burden. The payoff of a particular balance can seem far into the future and you will have to maintain your discipline to eventually get out from under the burden.

The following are some tips and strategies that may help you reach your goal sooner.

• Considering a Major Purchase? One way to reduce your debt is to save in advance for planned purchases and eliminate all together the need to borrow and pay the finance charges. Use the Savings Goal Calculator to determine what it will take to reach your desired savings goal.
  
  
• Plan Your Debt Retirement! Being able to see the light at the end of the tunnel makes the sacrifices needed to clear up your debt easier to live with. That's why you should have a plan in place to retire your debts.
  
  
• Establish an Emergency Fund. Unless you are very lucky, over a long period of time you will incur unexpected expenditures. Typically, when that happens and you have no cash available, the emergency expenditure ends up on your charge card and the cycle of new charges and repayments continue. 

A better solution is to allocate some contingency dollars to an emergency savings account while paying back your credit cards as quickly as you can. This allows you to divert more to paying off existing debts when the emergency fund becomes large and significant to cover unexpected expenditures. Your goal should be to avoid any new charges while watching your balances decrease at a planned rate.

Over the past few years, mortgage interest rates have dropped significantly and homeowners in increasing numbers are refinancing their home mortgages and in the process, have extended the term of the loan and are frequently taking additional cash out to pay down other debts, finance education, buy a car, etc. In doing so, homeowners may be unwittingly creating a situation where part of their home mortgage interest may no longer be deductible. Generally, the mortgage interest that you may deduct on your home includes the acquisition debt and $100,000 equity debt, provided the combined debt does not exceed the value of the home or $1,100,000.

The root of the problem is that acquisition debt is not a fixed amount, and it steadily declines to zero over the term of the original purchase mortgage. If that mortgage is refinanced and the new term extends past the term of the original mortgage or the amount of the mortgage is increased, then the amount of the replacement debt that exceeds the original acquisition debt will no longer qualify as acquisition debt. This still may not present a problem so long as the replacement debt never exceeds the original acquisition debt plus the allowable $100,000 of equity debt illustrated in the figure below. The green shaded area represents the debt on which interest would be deductible as home mortgage interest while the red shaded area represents a the portion of a refinanced debt on which the interest would not be deductible as home mortgage interest.

Example: From the illustration above, the home was refinanced in the 15th year for $300,000. At the time of the refinance, the original acquisition debt plus the $100,000 equity debt totaled $250,000. Therefore, the amount of interest from the new $300,000 debt will be limited to the interest on $250,000 or 83.3% of the total mortgage interest (250K/300K).

If you have or might refinance, it is imperative that you retain a record of the terms of the original acquisition debt in case you exceed the debt limitation and need to prorate your interest deduction.

When refinancing, you also need to watch out for the Alternative Minimum Tax (AMT). The AMT is another way of computing tax liability that is used, if it is greater than the regular method. Congress originally conceived the AMT as means of extracting a minimum tax from high-income taxpayers who have significant items of tax shelter and/or tax-favored deductions. Since the AMT was conceived, inflation has driven up income and deductions so that more individuals are becoming subject to the AMT.

When computing the AMT, only the acquisition debt interest is allowed as a deduction, home equity debt interest is not. Neither is the interest on debt for unconventional homes such as boats and motor homes, even if they are the primary residence of the taxpayer.

Before you refinance a home mortgage, it may be appropriate to contact this office to determine the tax implication of your planned refinance and see if there are any other suitable alternatives.

There are a number of reasons to consider refinancing: lower payments, lower interest rates, eliminating PMI payments, home improvements, college funds, consolidating debt, purchasing a second home, or even financing a business venture. 

When considering such a move, remember there are costs associated with refinancing and any decision to refinance will depend upon whether the overall financial benefits warrant the expense to refinance. Things to consider include:

• How long will you own the property? If you plan to sell in the near future, you may not save enough from refinancing to warrant the cost.
  
  
• Will the interest from the new loan be fully deductible? There are deduction limitations on mortgage interest, and you might find that a portion of the interest you pay on the new mortgage may not be deductible.

Is refinancing the right thing for you? Let us help you determine if the expense of refinancing is justified, or if there are other options that might be more practical. Taking the proper course of action now can have a profound impact on the future.